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10 Oct 2006

Andrew M. Cuomo, Democratic candidate for attorney general, put $750,000 of his campaign treasury into a hedge fund directed by one of his largest financial backers. Two years later, the investment showed a return of nearly 20 percent, according to the New York Times.

In the case of Mr. Cuomo’s campaign, Rachel Leon, executive director of Common Cause New York, an organization that monitors campaign finance, said that the hedge fund investment was troubling, given that hedge funds are run privately, pick and choose their investors, and can be run by political supporters who benefit financially from the campaign’s investment. “It raises multiple questions on multiple levels,” she said.

Most campaigns are focused on their short term needs, keeping their money in conservative vehicles like savings accounts.

Government watchdogs say that because of the unregulated nature of hedge funds, it may be a good to ask whether a high return reflects a smart bet or simply a campaign supporter’s efforts to evade contribution limits by padding the return of a favored campaign account.

In an interview with the New York Times, Fred Wertheimer, president of Democracy 21, said “There’s no way to know what’s going on with a hedge fund,....The candidate knows, and the hedge fund manager knows, but the public doesn’t.” Democracy 21 is a Washington based nonpartisan group that works to reduce the influence of money in politics.

Wendy Katz, a spokeswoman for the campaign, wrote in an e-mail message to The New York Times, “The rationale for investing campaign funds in a hedge fund is the same rationale employed by nonprofits, universities (for example, Harvard and Columbia), state and city public pension funds and charitable foundations for investing in hedge funds, which is to grow the asset and maximize returns.” The spokeswoman also said that the investment did not represent any potential conflict of interest.